1 / 55

Met-Ed and Penelec’s 2011 to 2013 Default Service Program: The October 2010 Solicitation

Met-Ed and Penelec’s 2011 to 2013 Default Service Program: The October 2010 Solicitation. Chantale LaCasse , Senior Vice President, NERA Amparo Nieto , Senior Consultant, NERA 9 September 2010. Disclaimer.

tex
Download Presentation

Met-Ed and Penelec’s 2011 to 2013 Default Service Program: The October 2010 Solicitation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Met-Ed and Penelec’s 2011 to 2013 Default Service Program: The October 2010 Solicitation Chantale LaCasse, Senior Vice President, NERA Amparo Nieto, Senior Consultant, NERA 9 September 2010

  2. Disclaimer • Any statements describing or referring to documents and agreements are summaries only, and are qualified in their entirety by reference to such documents and agreements • The governing documents are: • Joint Petition for Settlement of Metropolitan Edison Company (“Met-Ed”) and Pennsylvania Electric Company (“Penelec”) for their Default Service Programs (Docket Nos. P-2009-2093053 and P-2009-2093054), as approved by the Pennsylvania Public Utility Commission (“PaPUC”) on Nov 6, 2009: http://www.puc.state.pa.us/general/search.aspx • Metropolitan Edison Company/Pennsylvania Electric Company Default Service Program Fixed Auction Process and Rules 2011-2013 • Metropolitan Edison Company/Pennsylvania Electric Company Default Service Program Hourly Auction Process and Rules 2011-2013 • Met-Ed and Penelec Default Service Supplier Master Agreements for the Residential, Commercial, and Industrial Customer Classes

  3. Agenda • Overview of Met-Ed and Penelec’s Default Service Program • Key Elements of the October 2010 Solicitation • Products and Supplier’s Business Opportunity • Auction Rules • Proposal Submission Process for the October 2010 Solicitation

  4. Overview of the Program

  5. Met-Ed and Penelec Default Service Program • Met-Ed and Penelec Default Service (“DS”) Program procures power from customers that do not choose service from an Electric Generation Supplier (“EGS”) during the period January 1, 2011 to May 31, 2013 • Threeclasses of customers by Company: Residential or R Class; Commercial or C Class (up to 400 kW); Industrial or LI Class (above 400 kW) • Full requirementsproducts (energy, capacity, ancillary services, applicable Transmission Services) are procured through descending clock auctions

  6. How Many Solicitations and When • DS Program includes a total of ten solicitations • All solicitations include a Fixed Auction while the Hourly Auction is only held once a year

  7. What Portion of Supply Is at Auction: Residential and Commercial • 100% of supply in the stub period (Jan 1, 2011 to May 31, 2011) • From June 2011 until May 2013: Residential Class 25% block energy through RFP with Company balancing and other components from PJM markets 75% full requirements supply through the Fixed Auction Commercial Class 100% full requirements supply via Fixed Auction Industrial Class Up to 50 MW supply eligible for Fixed Auction procurement for customers that enroll Full requirements supply for the remainder through the Hourly Auction

  8. Two Different Price Plans: Fixed Price Service • Fixed Auction is for a “Fixed Price Service” Plan: • Residential payments and rates: • Stub period: 95% based on the final auction price and 5% based on the real-time PJM price and a fixed $9/MWh adder • Starting June 1, 2011: 100% fixed at the final auction price • Commercial payments and rates: • 90% based on the final auction price and 10% based on the real time PJM price and $9/MWh adder • Industrial opt-inoption payments and rates: • 100% fixed at the final auction price (October 2010 Solicitation only) • Seasonal billing factors apply

  9. Seasonal Billing Factors under the Fixed Price Service SMAs

  10. Two Different Price Plans: Hourly Priced Service • Hourly Auction is for service priced to the hourly PJM real-time market • Applicable to Industrial class • Industrialpayments and rates are based on the final auction price, the real-time PJM price for energy, and a fixed $2 adder

  11. Supplier Risk Mitigation Features • Full requirements excludes Network Integration Transmission Service (“NITS”), which is paid by the Company and recovered from customers • Supplier is protected from the following risks: • Change in NITS rate • Changes in AEPS law • Risks of procurement of SPAECs • Supplier assumes other risks of full requirements product, including migration risks

  12. Key Elements of the October 2010 Solicitation

  13. Main Features of the October 2010 Fixed Auction • A Fixed Auction with a descending-clock format • A total of ten products in the Auction: Residential (R) , Commercial (C), and Fixed Price ServiceIndustrial (LI), each defined by three dimensions: • the Company/the Class/the supply period • LI customers will have the choice to opt-in to a 12-month Fixed Price Service in the October 2010 Solicitation • Open to the first 50 MW of LI DS Load that Opts-In • Each Class DS load divided into “tranches” • A tranche represents a fixed percentage of the DS load

  14. The Residential and Commercial Products of the October 2010 Fixed Auction

  15. The Industrial Fixed-Price Service Products of the October 2010 Fixed Auction

  16. Auction Format is a Clock Auction • Multi-product design • Tranches for both Met-Ed and Penelec are procured at once • Multi-round design • Suppliers state how many tranches they want to supply at prices suggested by the Independent Evaluator • Prices tick down if there is excess supply • Suppliers could switch their bids from one product to another in a given Auction • All-in price in $/MWh

  17. Fixed Auction Example: Prices Tick Down When There Is Excess Supply

  18. Fixed Auction Example: Prices Tick Down When There Is Excess Supply

  19. Commission Has Approved the SMAs • Different Supplier Master Agreement (“SMA”) for each Class and Company • The parties to the SMA are the Company and the Default Service Supplier • Participants in the proceeding had the opportunity to submit comments and to propose modifications • Final Agreements are approved by the PaPUC and are non-negotiable

  20. October 2010 Auction Timeline

  21. October 2010 Auction Timeline (cont.) * Assumes the bidding closes on the18th.

  22. Process After the Auction • Commission will consider the results of the Auction within one business day after the Independent Evaluator submits its report • Either the Commission approves all results (for both Companies and all Classes) or all results are rejected • If results are accepted, SMAs are executed within three business days • Any security required under the creditworthiness standards of the Agreement is posted upon execution of the Agreement • Any financial guarantees submitted as part of the Proposal process are returned to the Supplier

  23. Supplier’s Role and Standard Contract

  24. What is a Tranche? • A tranche is a set percentage of a Company’s Default Service load for a Class (R, C, or LI) • Winning suppliers will be serving the tranches of DS Supply for a specific Company and Class • Loads upon which Suppliers are paid are adjusted for losses to the zonal aggregate load bus and de-rated in accordance with PJM’s marginal loss implementation procedures • All Default Service customers are free to come and go from Default Service provided that they give notice at least 16 days before their next scheduled meter reading date

  25. PJM’s Perspective of Suppliers From PJM perspective, DS Suppliers are “Electric Generation Suppliers” (EGS) and must be registered as Load Serving Entities (LSE) by January 1, 2011 Each Company will inform PJM of each Supplier’s obligation for each category of ancillary service

  26. Suppliers have the opportunity to: Aggregate supply portfolio from wholesale sources Assess and price load variability, market price volatility and migration risk Wholesale Sources and Supplier’s Opportunities Wholesale Sources may include: Power from owned-generation resources (in PJM or adjoining regions), bilateral energy transactions, PJM energy markets, financial and OTC, weather derivatives markets

  27. Key Elements of Credit Provisions of SMAs • Security requirements are on a sliding scale on the basis of credit ratings and Tangible Net Worth (“TNW”) • Minimum Rating to obtain unsecured credit line is BB- from S&P / Fitch and Ba3 from Moody’s

  28. Key Elements of Credit Provisionsof SMAs (cont.) Fixed Auction SMAs: Independent Credit Requirement (“ICR”) as well as Mark-to-Market • ICR declines over the term of each of the SMAs (See Appendix B of the SMA) • Initial ICR for the October 2010 Solicitation • $375,000 per Tranche for a 5-month product • $750,000 per Tranche for a 12-month product • $1,500,000 per Tranche for a 24-month product • The Independent Credit Threshold (“ICT”) determined as a function of the Supplier’s credit ratings and % of TNW is used to either partially or fully cover the aggregate ICR amounts across all Default Service obligations to a given Company

  29. Supply Payments for the October 2010 Solicitation Vary by Class Industrial Class 100% Fixed at the final auction price Commercial Class 90% Fixed at the final auction price. 10% varies based on the real-time PJM hourly energy price at the Company zone plus a fixed pre-specified adder of $9.00/MWh Residential Class 100% Fixed for the 12- and 24-month products For the 5-month products is: 95% Fixed at the final auction price and 5% varies based on the real-time PJM hourly energy price at the Company zone plus a fixed pre-specified adder of $9.00/MWh Rates for customers are determined on the same basis

  30. Compliance with AEPS through AECs Compliance with Tier I and II requirements must be demonstrated using Alternative Energy Credits or AECs issued by PJM-EIS GATS Suppliers must use PJM-EIS GATS to transfer AECs to the Companies to meet their AEPS requirements Prior to using the PJM-EIS GATS, Suppliers must register into GATS and open a Retail LSE Account GATS Administrator is available to help Suppliers through process: For information and forms, see: www.pjm-eis.com Phone: 610-666-2245; Fax: 610-771-4114 • Suppliers will be responsible for any changes to non-solar Tier I and Tier II requirementspriorto execution of a DS SMA, and for any increasing requirements permitted under existing lawduring the term of a DS SMA • Supplierswill notbe responsible for future legislative or administrative changes to the Tier I and Tier II requirements that are imposed following the effective date of the DS SMA

  31. Bidding in the Auction

  32. Descending Clock Auction - Round Schematic Round and Bidding Start Bids at Going Prices Bidding Ends • Totalexcess supplyin the round andgoing pricesfor next round (Price for a product ticks down if total tranches bid are greater than the product target) Information to Bidders Round Ends

  33. Four Main Features • Total number of tranches bid cannot increase: • Bidders can only maintain or reduce their total number of tranches bid from one round to the next • Bids are binding until the price ticks down again: • A bidder can only change the number of tranches bid on a product if the round price ticked down • Auction closes on all products at once: • Winners are determined for all products at the same time • Uniform price for allwinners on a product

  34. What is a Bid in Round 1? • Bid: number of tranches for each product that a supplier is willing to serve at the going prices of the round. E.g.: • Two rules: • the total number of tranches bid on all productscannot exceed bidder’s initial eligibility • the number of tranches bid on a productcannot exceed the load cap

  35. Round 1 Report The Bidder can see: • Range oftotal excess supply • Total excess supply is the sum of excess supply for all products • Range includes actual total excess supply • 5-tranche range at start of Auction • The next roundprices (round 2) • The bidder’s own bid in round 1 Bidder has no information about others’ bids, identities or eligibilities

  36. Changes in Round 2 Bidding • If the price for a product has ticked down,a bidder will be able to: • Withdrawtranches from the product • Switch tranchesto another product, by reducing tranches bid on that product and increasing tranches bid on another • Both withdraw and switch tranches

  37. What Are The Rules In Round 2? • The total number of tranches bidon all products combined cannot exceed eligibilityin round 2 (the number of tranches bid in round 1) • The number of tranches bid on any one product cannot exceed the load cap for that product

  38. Bidders Must Name an Exit Price When Withdrawing a Tranche • A bidder must enter an exit price (a final and best offer): • Above current going price • Below or equal to the going price of the previous round

  39. A Bidder May Be Asked to Provide Switching Priority Information • A bidder may reduce the tranches bid on one or more products and increase the tranches bid onmore than one product • In case not all requested switches can be granted, the bidder will be asked for a switching priority

  40. A Bidder Could Be Asked to Indicate Which Tranche is Being Withdrawn • A bidder may want to reduce the number of tranches bid on several products but only switch some of the tranches • The bidder will need to designate which tranches are being withdrawn and name an exit price

  41. Changes in Round 2 Calculating Phase • A bidder may have requesteda switch or a withdrawal – but it may not be granted if necessary to fill the tranche targets • The Independent Evaluator fills tranche target in this order: • first with tranches bid at the going price • then by retaining exits (if necessary to fill the target) • then by denying switches (if still necessary)

  42. Changes in Round 2 Reporting • Each bidder gets this information: • A range of total excess supply • The prices for next round • The bidder’s own bid, including: • Any tranches requested to be withdrawn that were retained (retained at the exit price) • Any tranches requested to be switched that were denied (retained at the last price freely bid)

  43. Same Rules Apply for Rounds 3, 4… • Eligibility in round 3 is equal to eligibility in round 2 minus tranches withdrawninround 2 (even if any of those exits were denied) • Bidder can reduce number of tranches bid on a product (via switching or withdrawal) only if price has ticked down in that round • Exit price must still be above current going price and equal to or below previous going price

  44. When Does The Auction Close? • The Auction closes when total excess supply equals zero and none of the prices have ticked down • Bidding on all products will stop at the same time and the final auction prices will be calculated then • All bidders who win tranches of a productwill be paid the final auction price for that product

  45. Bids Are Submitted Online • Bidding is done through online Internet bidding through specialized auction software • Bidders access an Internet link • Bidders log in to the auction software using a Login ID and password provided by the Independent Evaluator to the Authorized Representative • Bids are submitted and round results received through the auction software

  46. System Technical Requirements Are Minimal

  47. Pauses • A bidder can request an extension to the biddingphase two times during the Auction • Typically due to technical problems • Bidders will be advised of length of extension (typically 15 min) • All bidders will benefit from the extended bidding phase • The Independent Evaluator can call a “time-out” any time • For example, in case of general technical difficulty • Generally no more than 15 minutes

  48. Proposal Submission Process

  49. Stages of Proposal Submission Process • Alternate Guaranty Process (Optional) • Part 1 Proposal: Basic Contact Information and financial information • New Bidders use the “Long Part 1 Form” to submit the Part 1 Proposal • Bidders that submitted a successful Part 1 Proposal in any of the previous DS Solicitations may use the “Short Part 1 Form” for the October 2010 Auction • Part 2 Proposal: Indicative Offers and Financial Guarantees • Submission of Bids: Auction Starts

  50. Key Dates

More Related